Air Products' move fuels takeover speculation

Trexlertown-based Air Products, which has 3,400 local workers, has enacted… (CHUCK ZOVKO, TMC )

July 25, 2013|By Scott Kraus and Sam Kennedy, Of The Morning Call

Air Products' board of directors passed a stockholder-rights plan during a special meeting Wednesday night, leading to speculation that the Trexlertown company could be the target of a takeover or activist investor seeking a management shake-up.

The company, one of two Fortune 500 companies in the Lehigh Valley and the region's third largest employer with 3,400 local workers, saw its stock price rise more than 6 percent on the news.

"The rights plan has not been adopted in response to any specific takeover bid or other proposal to acquire control of the company," Air Products said in a news release Thursday.

The step, known as a "poison pill" provision, is generally taken to prevent an investor from acquiring enough stock to complete a hostile takeover of a company. But analysts who follow the company's stock said a takeover is unlikely.

"Air Products has observed unusual and substantial activity in the company's shares," the company explained in its release. "The board of directors believes that the rights plan will help promote the fair and equal treatment of all stockholders of the company in the event of an accumulation of a substantial block of the company's shares."

Air Products spokesman George Noon said the board decided to take action because trading volume of company stock had surged to 3 million shares a day on six days since May. Average trading volume during May was just above 1 million shares.

Noon reiterated the company's assertion that the poison pill was not a response to any specific challenge to its existing power structure.

"Nobody has contacted Air Products," he said. "There has been absolutely no contact."

Under the plan, Air Products will offer shareholders the right to purchase one preferred share for every share of common stock they own at a reduced price if any individual or group acquires more than 10 percent of the company's stock, or institutional investor acquires 20 percent of stock, in a transaction not approved by the Air Products board. The rights would not extend to the acquired stock.

The company's stock closed up more than six points Thursday at $107.11 a share.

Air Products may have learned from its failed 2010 effort to acquire competitor Airgas. It was foiled by a poison pill provision created by the Airgas board.

Morningstar's Basili Alukos, who follows the company, said there's no clear indication of a specific takeover threat based on who holds major blocks of Air Products' stock.

"However, given Air Products' underperformance over a good portion of the past decade, we aren't entirely surprised that the firm may be the target of shareholder activism," he said.

In a bull market, companies like Air Products, whose recent performance has been tepid, often become targets of "activist investors" seeking to acquire enough shares to influence management and improve returns, said Jake Dollarhide of Longbow Asset Management, a Tulsa, Okla., firm with a stake in Air Products.

CNBC's David Faber speculated that Air Products could be a target of William Ackman, an activist investor who runs the hedge fund Pershing Square Capital Management.

The evidence pointing to Ackman is circumstantial. Earlier this month, Ackman circulated a letter seeking investors for a $1 billion bid to take over an unnamed company with some attributes similar to Air Products.

Initially, speculation turned to FedEx, whose stock spiked on the rumor it might be Ackman's target. Ackman did not return a call seeking comment.

Bids by activist investors like Ackman are different from corporate takeovers, Dollarhide said.

If Air Products were acquired by a competitor, such as Praxair, layoffs would likely follow, as the companies combine duplicative departments such as human resources, sales and marketing.

But when an activist investor such as Pershing Square tries to take control of a company by amassing stock, it is usually aimed at replacing certain board members or ousting top management with a goal of improving the stock performance.

"Typically, employees have less to worry about than board members and high-level executives," Dollarhide said.

Air Products' CEO, 59-year-old John McGlade, has been leading the company for just over six years. His predecessor, John Jones, was 56 when he retired after six years at the helm.

Employees, on the other hand, can take some comfort in the board's move to defend a takeover by passing a poison pill, he said.

"It is a good thing today if you own the stock, you are up 5 percent," he said. "You are less than a week removed from a tepid earnings report. There is probably a very low probability anything is going to happen."

The Trexlertown company reported Tuesday it earned a profit of $288 million on sales of $2.5 billion during the three months ended June 30. Compared with the same period last year, profit was down 19 percent on sales that were up 9 percent.

Air Products narrowed its full-year earnings-per-share forecast to a range of $5.47 to $5.53. Earlier in the year, the company had been predicting earnings in the range of $5.70 to $5.90.

Air Products, the world's largest hydrogen producer, is on the Fortune 500 list with PPL Corp. of Allentown and has more than 20,000 employees in more than 50 countries.